Which of the following are examples of commodity money?

Gold & Cigarettes

Should the packs of Marlboro cigarettes used to pay taxi drivers in Russia in the late 1980s be considered money?
Yes, the cigarettes as payment fulfill all the key functions of money.

If Marlboro cigarettes are money, are they commodity money or fiat money?
Commodity money As cigarettes have value independent of their use as money.
What are the four main functions of money? Describe each function.
Money should serve as a medium of exchange, a unit of account, a store of value, and a standard of deferred
payment.

A medium of exchange is something that is generally accepted as payment for goods and services.

A unit of account is a way of measuring value in an economy in terms of money.

A store of value is the accumulation of wealth by holding dollars or other assets that can be used to buy goods and
services in the future.

A standard of deferred payment is a characteristic of money by which it facilitates exchange over time.

What is commodity money?  

A good used as money that has value independent of its use as money.

How does commodity money differ from fiat money?

Commodity money has value beyond its use as currency, while fiat money has no intrinsic value

The value of your house increases.

Wealth increases.

Your boss gives you a 10% raise.

Income increases.

You take cash out of the bank and use it to buy an Apple iPad.
Money increases.

Which of the following best explains why a resident of Venezuela would wish to use U.S. currencies rather than
currencies issued by their government?
To better maintain their purchasing power.

Why might the demand for U.S. $100bills in emerging markets be greater than the demand for lower-denomination
U.S. bills?
Large-denomination bills allow substantial transactions to be carried out in cash.

Why did governments begin issuing paper currency?

Because gold and silver coins were difficult to Transport paper certificates were issued.
Because those transporting gold and silver coins were often Robbed so paper certificates were issued.

Why was paper currency needed?

Paper currency lowered the cost of transactions.
Suppose that an economy in 10000 B.C. used a rare stone as its money. Suppose also that the number of stones
declined over time as stones were accidentally destroyed or used as weapons. What probably happened to the value
of the stones over time?
If the number of stones declined, the value of the remaining stones would have increased (deflation).

What would the consequences likely have been if someone had discovered a large quantity of new stones?
If new stones were found, the value of the stones would fall (inflation).

Which of the following best describes blockchain technology?

A distributed system that registers ownership of funds and allows transactions to settle instantly.

How does blockchain technology lower banking costs?

It eliminates banks and other middlemen.

Since 1975, which measure of the money supply has grown more rapidly, M1 or M2?
Since the 1960s, M2 has grown more rapidly.

Has the growth rate of M1 been more or less stable than the growth rate of M2?
The growth rate of M2 has been more stable than the growth rate of M1.

If you ask someone who hasn't taken a course in economics to define the money supply, he or
she is likely to say something like, the money supply equals the total amount of paper currency
and coins in circulation. -Why does the Fed include more than just currency in M1, its narrow definition of the
money supply?
To more accurately measure the amount of money available as a medium of exchange.

What is the quantity theory of money?

A theory about the relationship between money and prices that assumes the velocity of money is constant.

What does the quantity theory indicate is the cause of inflation?

This theory is based on an identity known as the equation of exchange: MV=PY, where increases in the
money supply lead to an increase in inflation.
With an independent central bank, Congress has no direct control over monetary policy
 Pro

An independent central bank can resist political pressures to increase the money supply.   
 Pro

Members of the Board of Governors do not have to run for election. 

Con

The greater the rate of central bank independence, the lower the rate of inflation.
Pro

Central bank independence may allow the Fed to act in its own self-interest
Con

A student makes the following statement: "If the money supply in a country increases, then the level of total
production in that country must also increase." Briefly explain whether you agree with this statement.
This statement is false because if velocity falls more than the money supply rises, total production may fall.

How does a high rate of inflation affect the value of money?

Inflation reduces the value of money.
How does it affect the usefulness of money as a medium of exchange?
Fewer transactions using money may occur if inflation is high, thereby reducing the usefulness of money as a
medium of exchange.

If inflation is high, fewer transactions may occur, thereby reducing the usefulness of money as a medium of
exchange.

Why would Zimbabwe abandon its own currency to begin using U.S. dollars ("greenbacks")?
To restore confidence in the government's ability to stabilize and reduce the rate of inflation.

Which of the following is not a reason using the U.S. dollar as its currency would have enabled the economy of
Zimbabwe to resume growing?
There would be less control of the economy's money supply.

What potential problem could using U.S. dollars rather than its own currency pose for the Zimbabwean government?
The government would no longer be able to use domestic monetary policy as the money supply would be tied
to the other country's central bank.

Which of the following was NOT a consequence of the reparations Germany was being forced to pay?
The money supply shrank.

Which best describes why the president and Ms. Yellen did not discuss interest rates?
It is important for the Fed to maintain its independence.

Why would the president worry about the possibility that the appearance of Fed independence might be
undermined?
It could undermine confidence in the Fed and impact market conditions.